|»5 Minute Wrap Up by Equitymaster|
On This Day - 27 APRIL 2010
US$ 69 bn booster dose for Indian pharma
In this issue:
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These developments, however, are isolated to certain companies only. Infact, for the entire pharma sector, there are opportunities galore in the US generics market. Fathom this. In less than 24 months, 26 blockbuster drugs worth over US$ 69 bn (thrice the size of the domestic industry) are going off-patent in the US, the world's largest drug market. And the companies which stand to gain the most include the likes of Dr.Reddy's, Cadila, Lupin, Ranbaxy and Sun Pharma amongst others. This is because all of them have a strong presence in the US. Which means that there is considerable scope for revenues to increase from this market.
This is not to say that there are challenges. The dynamics of the US market have changed over the years. Indian pharma players have to compete not only with global generics players but also with each other. This means that the actual addressable market size tends to be a fraction of the total current value of branded drugs that lose patents. Thus, the key to sustain advantage in this market is to step up the pace of new product launches and also focus on niche products having limited competition. Therefore, despite the competition, these 26 blockbuster drugs going off patent is still an opportunity as it provides considerable bandwidth to Indian players to corner a good enough portion of the pie and enhance revenues. Indeed, after the volatility that this sector has faced in the past, the timing could not have been better.
There is every chance that this cheap money look for higher yields and flows into emerging markets. This could in turn lead to asset bubbles and greater than normal inflation in these nations. Hence, policymakers in emerging markets need to be on their toes. Countries like China and India will have to take some bold steps to curb this menace. Or else, the cheap money will wreak havoc on their shores as well.
While these are harsh words for these policymakers, Faber has a valid point. And it stems from the inflationary policies of these three guys in charge of the US financial and central banking system. With the US government, as per directions from these guys, busy printing dollars and pumping them into the global economy, gold does seem a good asset to hold But only till the paper currencies like the dollar continue to lose their worth. Well, when will this end is anybody's guess!
JPMorgan's CEO said that the US economy may be poised for a 'strong recovery'. Infact, the four biggest banks have since repaid most or all of the US bailout funds. What we remain skeptical of though is that as these companies deleverage, the US government is the one soaking up all these excesses in the system. If the US does not handle its tricky balance sheet prudently in the coming years, any recovery in the short term will turn out to be only illusionary.
Cities will also create 70% of the new jobs. All this will put huge pressure on the infrastructure of cities. And India spends just US$ 17 per head on infrastructure in its cities. That's about 15% of what China spends. The report says we need US$ 2.24 trillion to build the city infrastructure. That's an incredible figure. Our track record at focused and sustained spending on infrastructure is rather weak. Hence, in our view, we must also find ways of spreading economic progress beyond the cities.
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